Investors often need help understanding how market risk is evaluated in order to make a well-informed investment decision. One of the commonly used metrics, “Beta,” is both popular and intricate to grasp. Beta measures a stock’s volatility compared to the overall market. Stocks with a beta greater than 1 are more volatile than the market. Those with lower than 1 are less volatile than the market.
Now, let’s look at the top low-beta stocks of 2023 and understand more about the concept.
| Name | Closing Price ₹ | Market Cap ₹ Cr. | Beta (x) | Net Profit Margin (%) | 5-year
CAGR |
P/E Ratio (x) | ROCE % | Debt to Equity (%) |
| Divi Laboratories Ltd. | 3,705.05 | 99,465.77 | 0.43 | 22.48 | 21.70 | 54.55 | 17.79 | 0.03 |
| ZF Commercial Vehicle Control Systems India Ltd | 15,463.90 | 29,000.87 | 0.31 | 9.05 | 17.14 | 91.29 | 17.40 | 0.00 |
| Vinati Organics Ltd | 1,845.50 | 19,064.01 | 0.50 | 21.23 | 22.29 | 41.63 | 26.51 | 0.01 |
| RITES Ltd | 489.95 | 11,965.83 | 0.54 | 19.85 | 20.58 | 22.08 | 26.34 | 0.20 |
| Multi Commodity Exchange of India Ltd | 1,783.55 | 8,905.19 | 0.46 | 25.63 | 18.81 | 59.78 | 8.98 | 0.10 |
Note: The above list of low-beta stocks is dated September 15, 2023. The following parameters were used to get the list:
Now, let’s look at these stocks in brief.
ZF Commercial Vehicle Control Systems India Ltd specialises in the production of air brake actuation systems primarily designed for use in commercial vehicles such as trucks, buses, trailers, cars, and off-highway vehicles. Their product offerings encompass a wide range, including chassis systems, braking systems, and driveline technology.
Vinati Organics Ltd, established in 1989, specialises in the production of speciality chemicals and organic intermediaries. Their market reach extends across 35 countries globally, showcasing a strong and consistent presence. Initially focusing on a single product, the company has transformed into an integrated enterprise, diversifying its offerings. Presently, Vinati Organics caters to major industrial and chemical corporations in the US, Europe, and Asia, showcasing a comprehensive product range and playing a significant role in the global market.
RITES Ltd, also known as Rail India Technical and Economic Service Limited, is a public sector enterprise based in India. This corporation specialises in the domain of transportation infrastructure. It was founded in the year 1974 under the aegis of the Indian Railways, primarily with the objective of delivering consultancy services related to railway transport management to both domestic and international operators. Over time, RITES has broadened its scope and ventured into offering planning and consultancy services for various other forms of infrastructure, which encompass areas such as airports, ports, highways, and urban planning.
The Multi Commodity Exchange of India Ltd (MCX) is a notable commodity exchange situated in Mumbai, India. Established on November 10, 2003, by the Government of India, MCX stands as the largest commodity derivatives exchange in the country. It operates within the public domain, primarily functioning in the industry of commodity exchange. The exchange enables online trading of various commodity derivatives, encompassing commodities such as crude oil, lead, and gold, among others.
Now, let’s understand more about the concept of low beta and its importance.
Low beta stocks tend to have lower volatility levels than the overall markets typically represented by a benchmark index like the S&P 500, Sensex or NIFTY.
Beta = Cov(x,y) / Var(x)
Where
Y represents portfolio or stock returns (Dependent Variable).
X signifies market returns or index (Independent Variable).
Variance is the square of standard deviation.
Beta of 1: A stock with a beta of 1 tends to move in line with the market. This means there is a direct relationship between the stock price and the market. That is, if the market goes up 1%, the stock is expected to go up by approximately 1%. And if the market goes down by 1%, the stock is expected to go down by approximately 1%.
Beta less than 1: Stocks with a beta below 1 are considered low beta stocks. These stocks are less volatile than the market. If a stock has a beta of 0.5, it is expected to move half as much, on average, as the market does. These stocks are often considered less risky because they don’t fluctuate as much as higher beta stocks.
Beta greater than 1: Stocks with a beta above 1 are considered high beta stocks. These stocks tend to be more volatile than the market. If a stock has a beta of 1.5, it is expected to move 1.5 times as much, on average, as the market does. These stocks are riskier because they can experience larger price swings.
Negative beta: A stock with a negative beta has a unique characteristic in its price movements. When a stock possesses a negative beta, it typically moves in the opposite direction of the broader market. In other words, if the market experiences a 1% increase, a stock with a negative beta may be expected to decrease by approximately 1%, and conversely, if the market declines by 1%, the stock is expected to rise by approximately 1%.
Negative beta stocks are often viewed as assets that can act as hedges in a diversified portfolio. They tend to exhibit an inverse relationship with the market, providing some level of protection during market downturns.
In the global market, the baseline beta is 1.0. The significance of beta in stock valuation lies in its ability to gauge a stock’s risk relative to the broader market. Beta serves as a crucial metric for investors to assess the potential risks and rewards associated with a particular stock investment.
Investors look for stocks with low beta in high market volatility scenarios to safeguard their portfolios. These are also popular among risk-averse investors and those looking to diversify their portfolios.
Knowing the beta value of stocks and their significance can empower investors to make more informed decisions about their investment portfolios. You can explore stocks having low beta values and invest in them to diversify your portfolio and safeguard it in times of high market volatility. To get started, open a Demat account with Angel One for free!
Investing in low-beta stocks can be beneficial for risk-averse investors. These stocks are less volatile and tend to provide stability in turbulent markets. However, they may offer lower returns during bull markets compared to high-beta stocks.
A stock with a beta of 1 moves in line with the market. It’s considered a benchmark for market performance.
Low beta stocks in the National Stock Exchange (NSE) can include companies from various sectors. Some examples are mentioned above in the blog.
A beta of 1 indicates a stock’s price moves in line with the market. It’s neither inherently good nor bad but suits investors seeking market-like returns without excessive risk.
The best beta depends on your investment goals. Low beta stocks are suitable for stability, while high beta stocks can offer growth potential but come with higher risk. Choose based on your risk tolerance and financial objectives.
Disclaimer: This blog is exclusively for educational purposes. The securities quoted are exemplary and are not recommendatory.
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